Canberra, Sydney and Darwin were the only capitals that bucked the trend. Sydney’s house values rose a seasonally adjusted 0.1 per cent while Darwin’s increased 0.6 per cent.

Canberra was the star performer for the period with values growing by 1.9 per cent during July.

Christopher Joye, Rismark International’s economist, says Sydney home values have increased a modest 5.6 per cent per annum over the last 11 years, compared with an Australian capital city average of 7.8 per cent.

“After years of being the perennial laggard, Sydney housing now looks to be a relatively resilient store of wealth,” he says in a recent statement.

Joye also believes that the local housing market could be at a “crucial inflexion point”.

The financial markets are pricing in five rate cuts, he says, and the number one beneficiary will be the housing market. In fact, he believes borrowers are already benefiting from de facto rate cuts.

“If rates do remain on hold or begin to fall, we would expect to see Australia’s housing market find a base and begin to generate capital gains again.

“If the RBA has really come to the end of its tightening cycle – which we would find surprising given the high core inflation revealed over the last six months – 2011 to 2012 will likely be judged one of the best buying windows seen in quite some time,” he says.

Falling house prices come at a time of improving affordability.

The HIA-Commonwealth Bank Housing Affordability Index improved 0.8 per cent in the June quarter – taking the index to 7.2 per cent above the level registered in the June 2010 quarter.

Despite improvements in affordability, property buying is still an expensive exercise.

Soaring property prices in the last decade, for instance, spurred Sydney to become the most expensive city in the world, according to a survey by the Economic Intelligence Unit.

In a hearing of the House of Representatives Standing Committee on Economics last month, Reserve Bank governor Glenn Stevens also questioned why land could not be priced more cheaply. “How is it that a country of our size –we are not short of land – cannot add to the dwelling stock for the marginal new entrant more cheaply than we seem to be able to do? I cannot get past that basic question,” he said.

Transport, zoning, supply and infrastructure were some of the key elements that had to be taken into account if Australians’ access to housing were to improve, he said.

One key to buying the right property is location, and for investors, rental demand.

The good news is rental demand, unlike housing prices, is on the up – and shows few signs of slowing down.

Inner Sydney for example, is facing a chronic shortage of rental property, and landlords will have little trouble finding tenants.

According to research from the Real Estate Institute of NSW released in June, the rental vacancy rate within a 10 kilometre radius of the Sydney CBD had fallen below the critical 1 per cent level.

Angus Raine, chief executive of real estate chain Raine & Horne, says rents have been “rising considerably over the last four to five years”.

But he warns investors and landlords from taking advantage of this phenomenon.

“You have to be cautious not to make a rise too quickly, and you lose a good tenant,” he says.

“It’s a balancing act. Treat them fairly and set a market rent that is fair for both parties.”